Question

what extent are these timing strategies considered morally acceptable? Do you think taxpayers view these strategies as a way to manipulate the numbers?

Answer 1

Timing strategies in income tax

Three Basic Tax planning strategies

1. Timing
2. Income Shifting
3. Conversion

Two Basic Timing Strategies

The two strategies are deferring taxable income and accelerating tax deductions.

The intent of deferring taxable income recognition is to minimize the present value of taxes paid.

The intent of accelerating tax deductions is to maximize the present value of tax savings from the deductions.

Common Examples of Timing Strategy

Some common examples of the timing strategy include accelerating depreciation deductions for depreciable assets, using LIFO versus FIFO for inventory, accelerating the deduction of certain prepaid expenses, etc.

Tax planning strategies can defer some of your current year’s tax liability to a future year, thereby freeing up cash for investment, business, or personal use. This can be accomplished by timing when certain expenses are paid, or controlling when income is recognized. Tax planning allows you to take advantage of tax rate differentials between years. However, if tax rates rise in a subsequent year, extra caution may be necessary.

It is an effective way for tax saving. It is legal and you can reduce the tax up to certain limit. This helps the taxpayer to reduce tax liability and from the thought of manipulating the numbers by means of illegal methods of tax evasion.